That’s the cover of this weekend’s Barron’s. Unfortunately for Barron’s readers, they are 4 days behind my call to buy EWJ as well as my bullish call on the overall market on Tuesday in Member chat, which I reiterated in my BNN interview that evening. We went bargain shopping on Wednesday and picked up the EWJ June $10 calls at .58 and they already powered up to .85 (up 46%) so we took that and ran into the weekend – just in case something blows up (we can always get back in with a hedged position but 46% in 2 days is plenty to start!). We had more bullish trade ideas this week than in any week since early December, when we first broke though 1,225 on the S&P.
Unfortunately, despite the pullback, there are no re-entires on our Secret Santa’s Inflation Hedges from late December as they are all in the money and well ahead of the entries. We do have re-loads on our Breakout Defense Part Deux Trades and those can substitute for inflation fighters going forward but we are miles above the original Breakout Defense Portfolio – which we closed quite some time ago. Once things in Japan do settle down, we’ll be ready with a new, bullish portfolio but, at the moment – I’ll just be thrilled to see us take back our Major Breakout levels and hold them next week.
Now that we feel better about our Breakout 2 levels holding, it will be a lot easier for us to make long-term commitments where we were hesitant before. Of course there is still plenty to worry about but, if DefCon 3 can’t take down the markets – who are we to fret about a little inflation?
Speaking of inflation – let’s consider this chart (from Doug Short) and what complete and utter bullshit the CPI is! Very simply, without looking at anything else – it’s housing. Housing is 42% of the CPI and declining housing costs have masked rising inflation for 5 years now.
Does a lower price of a new home lower your mortgage payment? Does it lower your monthly rent? Of course not. Not only that but, as many of us have noticed – property taxes are skyrocketing as local governments struggle to offset decreasing income and sales tax revenues and that is not a factor in the CPI either!
Between that and the asinine fact that the Fed excludes food and energy from their calculations of “core” CPI and this index becomes a joke of a joke – but that’s the perfect tool for determining our very ridiculous fiscal policies, isn’t it? That’s all I’m going to say about it though – I’m trying to see how far I can get in this post without getting all pissed about politics. Unfortunately – the more I read – the angrier I get. I’m kind of like The Hulk that way…
Keep in mind that inflation is pretty much our entire bullish premise as the Global Economy is not really in such good shape but prices do keep rising and that makes Corporate Revenues rise (even if they sell the same number of units) and that makes earnings rise as well – IF they manage to control their input costs. Since Real Estate is still in the dumps, that key cost component is well under control for those businesses still solvent enough to pay their rents. Labor costs, if anything, continue to plunge so – as long as we avoid businesses that are susceptible to commodity input costs – we should do fine. Here’s a great chart from ShadowStats giving us a pretty clear picture of just how much out Government is lying to us about inflation:
Again, I say this without anger – I am trying very hard to just point out some of the factors that cause us to think that perhaps it is already too late to be an inflation denier in this economy. We’re looking at 8% annual inflation and that is BEFORE all the stimulative policies that have dumped $5Tn of new money onto the US economy and $10Tn onto the Global Economy. The initial swelling of trickle down money goes to the banks to the investing class and then (I do hope this is obvious) into investments like TBills, stocks and commodities and that’s how we buy a market rally but stage 2 is much, much more dangerous as the market rally tops out and the top 10% begin to cash out their ill-gotten gains.
Once the people who benefited from stock and commodity inflation begin to cash out and buy things – they then begin to send a wave of price inflation, also from the top down, that can hit the lower classes like a tsunami that cannot be stopped. The bottom 90% can’t afford to buy homes with a median price of $158,000 at the moment (yes, that’s all it is!).
imagine what happens when financial advisors like Goldman begin telling their people to “diversify” back into housing and the top 1% begin to buy 5, 10, 20, 40 homes as investments – driving up the prices for the bottom 99% as they begin flipping homes with each other again. Even worse, this activity quickly leads to an increase in mortgage rates, as the pool of available capital is sucked up by people with the best credit.
IN PROGRESS
